On today’s episode of Healthcare Simplified Ned interviewed Doug Aldeen, a healthcare attorney from Austin, Texas. They talked about the state of healthcare today, particularly about how new plans like bundled payments and reference based pricing are disrupting the healthcare marketplace for the better.
Referenced-Based Pricing – Has anything changed in the last couple of months?
Within the past 30-45 days, it’s almost like a switch has been flipped. Whether it is the aggregation of market forces jumping into referenced based pricing, which in many instances leads to arguably favorable direct contracts, bundled payments is the next big thing that’s coming down in terms of market presence and having consumers look at different options.
Doug mentioned that he has seen a lot of people across the country talking about it on LinkedIn. This, he says, is because people in this country are struggling to afford healthcare costs and are looking for any option they can find to solve the problem. For example, teachers are looking into ways to cut down on their healthcare costs because it has become too substantial and a lot are finding it hard to keep up with paying.
However, Ned pointed out that that referenced-based pricing can pit hospitals against the members. He stated, “Referenced-Based Pricing is great for the employer financially but for hospitals it is tricky because it pits them against the member that they are trying to help and balanced billing is ugly for all involved. I really like the direct contract bundle payment method.” While referenced-based pricing can save employers a substantial amount of money, this may not be the best solution. Doug added, “Referenced based pricing is a bull in a china shop. It disrupts the status quo.”
However, the beauty of referenced-based pricing is that it gets you away from the PPO and allows you to steer people toward cost-effective providers who get good results, which normally PPOs wouldn’t allow you to do.
Are any states getting into reference-based pricing?
Doug mentioned that both North Carolina and Texas are looking into referenced-based pricing. However, they are not currently implementing it. As of right now, both states have legislation where they want to form an advisory panel to study the issues. North Carolina was planning on starting the implementation at the beginning of 2020, but this has been shelved in order to study it a little bit more.
If you pair a large state funded health plan (tax payer supported) with a non-for-profit hospital, this takes it to a whole other level in terms of issues you need to have. It brings up the question of, what is a fair market. If the hospital goes out and buts supplies, implants, and RX and then runs it through their black box, and then charge it back to a state funded health plan at a higher rate than the acquisition cost, is this fair? They aren’t being taxed and now they are marking up the price by tens of thousands of dollars. The worst part is that the buyers/purchasers have absolutely no idea that the price is being marked up.
Ned compares this marking up of prices to how car dealerships function. He talked about how you can go to multiple dealerships and the price of the same care will be completely different. However, even those prices aren’t fair prices because they are being marked up to benefit the dealership. They aren’t making the cars, they are just acquiring them, and so you are paying a higher price for that service. “That would be like me charging you $12,000 to pick up something from CVS for you.” Says Doug. This system makes absolutely no sense.
How will health systems accept the new reimbursement model?
“Any adjustment is going to have to come from the hospital side of the ledger.” said Doug. If you look at Inner Mountain Healthcare as an example, they own 65% of the market in Utah and their margin at one point was 27%. They have become a complete monopoly and this needs to change. It will be up to the hospital to become a much more efficient organization. However, Doug doesn’t think they can do it. “The organization is just too big.” he says. Especially non-for-profit hospitals that say money is important in order to keep running. Doug questions at what point does is go past a fair margin?
Employers have the power to change the system, if they have the proper knowledge.
Self-funded employers now make up over 50% of the market and the size of these employers is getting smaller and smaller. This shows that any company that is looking to save money on healthcare can make this change. However, the lack of data that most employers receive is phenomenal.
In most contracts there is a very limited right to audit data, which makes figuring out what the problem is and how to fix it very difficult for employers. Most employers then have no clue what is really going on and essentially end up being scared of the data in a way. Data has become this daunting thing that most employers would have no idea how to use to help their company. This has boxed everyone into a system that only benefits those people that created the system.
Hospitals, CFOs, and Consumerism
CFOs at hospitals right now are looking at the landscape over the next 5 years and seeing that they need to implement changes now. They are wondering how they are going to prepare their organizations for the time when consumerism becomes cash payments or bundled payments and becomes a majority of the company’s revenue. Hospitals will have to wean themselves from the cartel that currently exists between insurance carriers and hospitals in order to make this transition.
Doug says, “If I was a CFO and someone that I knew could tell me that I could reduce the amount spent on healthcare by 30, 40, 50 percent I mean I would do anything I could to implement it.”
Government Role in Healthcare
If we converted to a Medicare for all system, over 1 million jobs would be lost in the insurance system. Then you have to consider how Medicare reimbursement would affect hospital revenue. As of right now Medicare is 50% of their revenue, this would cause a fall in revenue. Doug states that this would not be a good solution.
Another big problem is how much control lobbyists have in this country. Doug tells us how much money is being spent on lobbyists and how insane it is that so many people are feeding off of the healthcare “carcass”. $689 million dollars was spent between the hospital lobby, physician lobby, and big pharma lobby. This shows that this system is not working or benefiting the people it should be. It would be very hard to fix the system at this point and Doug thinks that, “the system pretty much needs to be burned to the ground.” and he is hoping that something good can than spring up from that.
What’s the Solution?
Doug says the first think that needs to happen is that the leaders in companies need to get a hold of the data and really study it. They need to contact anyone they know in the business that can help them figure out a way to implement change because unless they put in the work and effort, the system will never change.
The biggest thing that needs to change is that healthcare is local, so the solution needs to be local. Go straight for the individual and stop with the middlemen that are thriving off of keeping everyone in the dark.
This blog is based off of our Healthcare Simplified podcast. To hear this episode, and many more like it, you can subscribe to Healthcare Simplified.